Orange Monster Drinks is considering the purchase of a plum juicer – the Moment Maid. The company is provided with the following information. • The juicer will cost $2,800,000 million fully installed and has a 15-year life. It will be depreciated to a book value of $400,000 and sold for that amount in year 15. • The new juicer will generate $850,000 in sales each year for the next 15 years. • Because of the expansion, operating costs will increase by $300,000 per year. • The company will increase net working capital by $280,000 at the beginning of the project; this amount will be recovered at the end of the life of the project. • The Engineering department spent $25,000 researching the various juicers. • Last month, portions of the plant floor were redesigned to accommodate the juicer. The cost of this modification was $150,000. The company that did the work sent Orange Monster Drinks an invoice last week; Orange Monster Drinks plans to pay the $150,000 tomorrow.
Orange Monster Drinks is considering the purchase of a plum juicer – the Moment Maid. The company is provided with the following information. • The juicer will cost $2,800,000 million fully installed and has a 15-year life. It will be depreciated to a book value of $400,000 and sold for that amount in year 15. • The new juicer will generate $850,000 in sales each year for the next 15 years. • Because of the expansion, operating costs will increase by $300,000 per year. • The company will increase net working capital by $280,000 at the beginning of the project; this amount will be recovered at the end of the life of the project. • The Engineering department spent $25,000 researching the various juicers. • Last month, portions of the plant floor were redesigned to accommodate the juicer. The cost of this modification was $150,000. The company that did the work sent Orange Monster Drinks an invoice last week; Orange Monster Drinks plans to pay the $150,000 tomorrow.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Orange Monster Drinks is considering the purchase of a plum juicer – the Moment Maid. The company is
provided with the following information.
• The juicer will cost $2,800,000 million fully installed and has a 15-year life. It will be depreciated
to a book value of $400,000 and sold for that amount in year 15.
• The new juicer will generate $850,000 in sales each year for the next 15 years.
• Because of the expansion, operating costs will increase by $300,000 per year.
• The company will increase net working capital by $280,000 at the beginning of the project; this
amount will be recovered at the end of the life of the project.
• The Engineering department spent $25,000 researching the various juicers.
• Last month, portions of the plant floor were redesigned to accommodate the juicer. The cost of this
modification was $150,000. The company that did the work sent Orange Monster Drinks an invoice
last week; Orange Monster Drinks plans to pay the $150,000 tomorrow.
• Orange Monster Drinks’ marginal tax rate is 35%.
• Orange Monster Drinks is 55% equity-financed and 45% debt financed.
• Orange Monster Drinks’ 16-year, semi-annual payment, 6% coupon bonds sell for $926.00.
• Orange Monster Drinks’ stock currently has a market value of $20.00 and the company believes
the market estimates that dividends will grow at 2.5% forever. Next year’s dividend is projected to
be $1.68.
The initial cash flow of the project is $___________.
The incremental total cash flow of the project is in year 15 is $_________.
TheIRR of the project is ______%.
The WACC of the Orange Monster Drinks is _______%.
TheNPV of the project is $_______.
provided with the following information.
• The juicer will cost $2,800,000 million fully installed and has a 15-year life. It will be depreciated
to a book value of $400,000 and sold for that amount in year 15.
• The new juicer will generate $850,000 in sales each year for the next 15 years.
• Because of the expansion, operating costs will increase by $300,000 per year.
• The company will increase net working capital by $280,000 at the beginning of the project; this
amount will be recovered at the end of the life of the project.
• The Engineering department spent $25,000 researching the various juicers.
• Last month, portions of the plant floor were redesigned to accommodate the juicer. The cost of this
modification was $150,000. The company that did the work sent Orange Monster Drinks an invoice
last week; Orange Monster Drinks plans to pay the $150,000 tomorrow.
• Orange Monster Drinks’ marginal tax rate is 35%.
• Orange Monster Drinks is 55% equity-financed and 45% debt financed.
• Orange Monster Drinks’ 16-year, semi-annual payment, 6% coupon bonds sell for $926.00.
• Orange Monster Drinks’ stock currently has a market value of $20.00 and the company believes
the market estimates that dividends will grow at 2.5% forever. Next year’s dividend is projected to
be $1.68.
The initial cash flow of the project is $___________.
The incremental total cash flow of the project is in year 15 is $_________.
The
The WACC of the Orange Monster Drinks is _______%.
The
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